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EUR/USD, GBP/USD Forecast: Two trades to watch

Article By: ,  Senior Market Analyst
Today 11:08 AM

EUR/USD rises as investors cheer the German election result

  • CDU leader Friedrich Merz will be the new Chancellor
  • German IFO Business sentiment declines
  • USD struggles at a 2-month low
  • EUR/USD remains below 1.0530

EUR/USD is rising on Monday as investors cheered Germany's election results, which put centrist parties on track to form a coalition. However, optimism is limited by potential tricky negotiations regarding economic policy.

Christian Democratic Union of Germany (CDU) leader Friedrich Merz is set to become the German Chancellor after getting the majority of votes. However, he is expected to face many challenges, including complicated negotiations to form a coalition government. This will likely involve the Social Democratic Party of Germany (SPD).

This coalition is unlikely to deliver significantly more for the German economy than the short-lived positive impact of some tax cuts and small reforms.

The broader outlook for the euro remains weak as ECB officials continue to support further monetary policy easing. On Saturday, ECB policymaker Villeroy de Galhau said that the central bank had cut its deposit rate down to 2% by this summer. His comments come following eurozone flash PMI data for February on Friday, which showed the composite PMI remained unchanged at 50.2, below the 50.5 forecast.

Today, German Ifo data for February was also weaker than expected, with the Ifo business climate coming in at 85.2, lower than expectations of 85.8.

Meanwhile, the US dollar continues to struggle at around a 2-month low. The USD fell last week, marking the third straight weekly decline amid mounting concerns over the economic outlook.

The US composite PMI fell to its lowest level since September 2023, and the services PMI dropped into contraction due to political uncertainty.

Trump's speech later today could influence the USD. This week, the main focus will be US core PCE, which is expected to ease to 2.6%.

EUR/USD forecast – technical analysis

EUR/USD continues to trade above the 50 SMA but once again failed to rise above 1.0530, keeping the pair within a familiar range.

Buyers, supported by the RSI above 50, will need to rise above 1.0530 to create a higher high and extend gains towards 1.06.

Support can be seen at 1.04, the round number, and the 50 SMA. A break below here could open the door to support at 1.0340.

GBP/USD rises ahead of Trump & BoE's Ramsden's speeches

  • GBP extends gains into a fourth week
  • USD struggles ahead of Trump’s speech
  • GBP/USD tests 100 SMA resistance

GBP/USD is rising modestly at the start of the week, adding to last week’s gains boosted in part by the weaker USD which trades at a 2-month low.

The pound continues to be supported by Friday's upbeat UK retail sales data, which rose 1.7% in January compared to an upwardly revised -0.6% in December. Adding to this, the UK services PMI unexpectedly rose to 51.1 in February from 50.9 in the previous month. And now they're asking this overshadowed fooling UK manufacturing to a 14-month low.

The pound has brushed off the BoE's more gloomy outlook, as policymakers slashed the UK's growth forecast for this year to just 0.75%.

Attention will be on BoE’s David Ramsden who is due to speak later today and may shed more light on the outlook for rates after the central bank cut rates by 25 basis points in February and indicated it would cut rates again, despite raising its inflation outlook for this year.

The USD is trading at a two-month low amid worries over the outlook for the US consumer. These worries are fueled by disappointing sales forecasts from Walmart and PMI data showing economic growth faltered in February.

The US economic calendar is quiet today. Attention will be on a speech by President Trump later today. Looking out across the week, US core PCE will be the main focus.  Cooler inflation could pull USD lower and boost GBP/USD.

GBP/USD forecast – technical analysis

GBP/USD has extended its recovery from 1.21, the 2025 low, rising above the 50 SMA and resistance of 1.25 and 1.26. This, combined with the RSI above 50, keeps buyers hopeful of further gains.

Buyers will look to rise above the 100 SMA at 1.2670 to expose the 200 SMA at 1.27.

Immediate support can be seen at 1.26 and 1.25. Below here, the 50 SMA comes into play at 1.2470.

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